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Source: Reuters

FOREX-Dollar index falls to 3-year low; US data weighs

Published: 29 Apr 2011 03:00:39 PST

* Dollar index hits 3-yr low; euro highest since Dec 09

* Euro may head toward $1.50, Aussie $1.10

* Bank of Japan easing seen possible (Updates prices, adds details)

NEW YORK, April 28 - The dollar fell to a three-year low against major currencies on Thursday on the Federal Reserve's intention to keep interest rates near zero, while softer-than-expected U.S. jobs and growth data underscored the bearish sentiment.

Ultra-loose U.S. monetary policy has been a bane for the dollar and a boon for the euro, which is up nearly 11 percent against the U.S. currency so far this year.

The Federal Reserve said on Wednesday it would complete its $600 billion bond-buying program in June. But Fed Chairman Ben Bernanke signaled no rush to tighten monetary policy with the jobs market still in a "very, very deep hole". For more see [ID:nN26291565].

Data on Thursday showed the U.S. economy grew less than expected in the first quarter and initial weekly jobless claims rose more than forecast. [ID:nCAT005418] ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ For graphic on U.S. GDP: U.S. jobless claims: Fed funds rate hike expectations: ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^

"The reality is that low short-term U.S. rates for an extended period are guaranteed, regardless of how the Fed's language evolves this year, until the Fed starts intervening in the markets differently," said Lena Komileva, global head of G10 strategy at Brown Brothers Harriman in London.

There is bound to be a long gap between ending the Fed's commitment to low rates for an extended period and the eventual normalization of U.S. rates, which would improve the dollar's yield advantage against the rest of the world, she said.

"This is a story for 2012 at the earliest."

With few positives seen for the dollar, the euro is on track toward $1.50, strategists said.

The dollar index, which measures the dollar's value against a basket of currencies, slid to a three-year low of 72.871 and was last at 73.121 <.DXY>, down 0.5 percent on the day.

The dollar index has fallen around 3.5 percent this month, bringing it closer to a record low of 70.698 hit in March 2008.

The euro was up 0.3 percent at $1.4819 <EUR=>. The euro hit its highest since early December 2009 after breaching resistance around $1.4850, the upper part of an uptrend channel since mid-February.

"It's all one way across the board. Everyone seems to be betting on a weaker dollar and it seems a pretty safe bet," said Niels Christensen, currency strategist at Nordea in Copenhagen. "The market is taking on board the more dovish element of the (Fed) statement and the fact there is no indication of an early rate hike."

He added that it was "not a bold forecast" to expect the euro to hit $1.50 in the next week or two.

Euro technical resistance is seen at the Dec. 7, 2009 peak of $1.4905. Above $1.4900, traders reported more offers at $1.4930 up to $1.4950, where another options barrier was reported.

Against the yen, the dollar was down 0.8 percent at 81.51 yen <JPY=>. The euro fell 0.5 percent at 120.81 yen <EURJPY=>.

The Bank of Japan late Wednesday lowered its growth outlook.

Jens Nordvig and Ikeda Yunosuke, foreign exchange strategists at Nomura Securities, said likely BoJ easing will come when other global central banks are either in tightening mode, such as the European Central Bank and the Bank of England, or starting to contemplate the exit, like the Fed.

"We have been in no rush to recommend USD/JPY longs lately, but as we drift closer to 80, the upside trade is looking increasingly attractive," they said. "At the same time, we are looking for direction from Toshin flows (slightly more positive lately) and U.S. rates (negative in April so far), in order to time any fresh short yen trades."

With U.S. interest rates expected to remain at record lows for the foreseeable future, higher-yielding currencies are expected to continue to outperform the dollar.

The high-yielding Australian dollar <AUD=> scaled a fresh post-float high of $1.0948. The free float began in December 1983, and was last up 0.5 percent at $1.0924.

Sterling hit a 17-month peak <GBP=> and was last up 0.1 percent at $1.6637.

In other news, Senator Charles Schumer said in a statement on Thursday following a recent trip to Beijing that he was "more convinced than ever" of the need to pass legislation to force China to raise the value of its currency against the U.S. dollar. [ID:nN28264675].

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